The Effect of Tax Incentives on the Investments of Export Processing Zone Firms in Kenya

Abstract

The purpose of the study was to establish the effect of tax incentives in Export Processing Zones firms on business investment in Kenya. Specifically, the study establishes the various types of tax incentives offered to EPZ firms on their business investment in Kenya as well as the effect of tax incentives on investment. This study adopted a descriptive design. The population for the study included all 104 Export Processing Zones firms in Kenya where the researcher selected all firms situated in the Nairobi Metropolitan (that is Nairobi and Kajiado Districts) purposively giving 65 firms. The study used both primary and secondary data. For the primary data, a set of semiprofit/ value added questionnaires was used to collect data. A pilot study was conducted by the researcher and the results were analyzed for validity and reliability of the research instruments. The Pearson‟s Product Moment Correlation Co – efficient was used where it was found to be 0.87 and indication that the instruments were consistent. Descriptive statistical techniques were utilized in data analysis while inferential analysis was used to reach conclusions that extend beyond the immediate data alone by determining the relationship between tax incentives and investments of export processing zones firms. The output was presented by use of tables, bar graphs and pie charts. The study in consistence with the statistical data shows that, investments in EPZ firms increase with increase in sales, profit as well as tax incentives. However, given the high significance level, 0.39, the influence of tax incentives on investments in EPZ is insignificant. Given the findings of this study, the researcher recommends that the Government of Kenya should consider other incentives apart from the tax particularly on those that will enhance more sales, being the most significant factor attracting investment in EPZ granted to attract foreign direct investment, especially those provided to EPZ firms.